BSL Bulletin

Singapore is known for its clean and green environment including a very efficient government and excellent infrastructure. It is famous for its shopping and food culture. It is one of the developed countries sought out by expatriates and multinational companies to headquarter their businesses. Although the cost of living is climbing higher and owning cars is one of the most expensive things, Singapore is still popular for its many advantages. The public transport system is one of the best in the region and it has a world class Changi airport which provides for efficient global travel.

This article focuses on the implications of what an expatriate should consider when relocating to Singapore.

Singapore tax rules

Singapore has the territorial tax system. Income accrued in or derived from Singapore or received from outside Singapore is assessable to tax in Singapore.

The source of employment income is where the services are rendered. This is a question of fact. The location where the services are rendered is a very important factor but may not be a conclusive factor to determine the source of employment income. For instance, if part of the employment is exercised outside Singapore, but if it is established that it is incidental to the employment or substantial work performed in Singapore it would be treated as being sourced in Singapore.

The gains or profits from employment sourced in Singapore that will be assessable to tax include any form of wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance paid or granted in respect of the employment whether in money or otherwise. This is a detailed definition which includes any benefits in kind provided they arise as a result of the employment exercised in Singapore.

Please note that from 1 Jan 2004, foreign sourced income received by individuals from outside Singapore is exempt from Singapore tax.

Singapore collects its taxes on a preceding year basis, in other words, for employment income earned in the calendar year ended, say 31 Dec 2014, it is assessable in the year of assessment 2015. We do not have any pay-as-you-earn scheme, and the income tax payable will be assessed after the personal income tax return is filed on 15 April of the relevant year of assessment, and in the above instance case, by 15 April 2015.

Taxpayers can choose to arrange their payment of outstanding tax liabilities by 12 monthly instalments commencing in May 2014 and ending in April 2014 through inter-bank deductions. Alternatively they can choose to pay by one lump sum which must be settled within one month from the date of issue of the Notice of Assessment.

Basis of taxation

Based on Singapore tax laws an expatriate working in Singapore will be assessable to tax depending on his duration of the employment in Singapore as well as his tax residency status in Singapore.

Short term visiting employee

If an expatriate is sent to Singapore on a short term employment where the duration is 60 days or less, then the person will be exempt from tax on his employment income for the work done in Singapore.

Expatriates who work in Singapore for more than 60 days but less than 183 days

Such employees will be assessable to tax at resident rates or a fixed rate at 15% whichever is the higher. The expatriate will be required to file a tax return as a non-resident of Singapore.

Expatriates who work in Singapore for more than 183 days

Under the Singapore tax rules, for an individual to be treated as a tax resident of Singapore, he has to be physically present in Singapore or exercising an employment in Singapore for 183 days or more.

In this regard, the expatriate should file a tax return as a Singapore tax resident, and be assessable to income tax at the graduated resident rates. The graduated tax resident rates starts at 0% for the first $20,000 chargeable income and reaches the top rate at 20%, which is applicable to chargeable income in excess of S$320,000. Hence, the effective tax rate for the first S$320,000 chargeable income is about 13%.

Tax Treaty Protection

On the other hand if the expatriate is seconded to work in Singapore on short term basis and is resident of the other country with which Singapore has concluded a double tax treaty, then the expatriate employee may seek treaty protection to exempt his employment income from any Singapore tax, provided he can satisfy generally the following conditions:

• the expatriate is present in Singapore for a period or periods not exceeding in the aggregate 183 days (the period condition may vary from treaty to treaty);
• the services are performed for or on behalf of a person who is a resident of the other country;
• the remuneration is subject to tax in the other country; and
• the remuneration is not directly deductible from the profits for tax purposes of a permanent establishment or a fixed base in Singapore.

The expatriate will also be required to provide his tax residency certificate from the tax authorities of the other country in order for the individual to access the treaty benefits. In this regard, expatriates who fall within the time period between 60 days and 183 days of working in Singapore, and who is tax resident of a tax treaty country should be exempt from any Singapore tax on their employment income subject to satisfying the above conditions.

Tax incentives

We have various tax administrative concessions and schemes to attract foreign talents to relocate to Singapore to impart their skill and technology in order to boost the Singapore economy, and bringing it to the next level. We have the Area Representative and Not Ordinarily Resident Schemes.

Area Representative (“AR”) Scheme

Under the AR scheme, if the expatriate is seconded to work in Singapore for or on behalf of his employer overseas, and foreign employer has set up an Area Representative office in Singapore in order to seek and understand business opportunities available in the region, in other words have not commenced yet any business operations in Singapore, then such an expatriate employee may qualify to be treated as an AR. Under the AR scheme, the expatriate can enjoy time apportionment of employment income subject to fulfilling the following conditions:

The expatriate employee must:

• be employed by a non-resident employer;
• be based in Singapore for geographical convenience;
• be required to travel outside Singapore in the course of his duties; and
• be paid by the foreign employer and his remuneration must not be charged directly or indirectly to the accounts of a permanent establishment in Singapore.

If the expatriate qualifies as AR, the individual will be taxed on the amount of remuneration attributable to the number of days spent in Singapore. However, any benefits-in-kind provided in Singapore are fully taxable. The AR employment income will be prorated based on the duration of the physical presence in Singapore during the calendar year:

[Number of days of presence in Singapore/Total number of days in the basis period] x Employment Income

Not Ordinarily Resident (“NOR”) Scheme

The NOR scheme is very popular with expatriates who relocate and work in Singapore.

Under the NOR scheme the qualifying expatriate will enjoy time apportionment of the employment income in that the expatriate only pays tax on the employment income that is attributable to the days the person is present and/ or working in Singapore. In addition the NOR will enjoy tax exemption on contributions made by the employer to an overseas pension fund which ordinarily would be treated as taxable employment income. This tax incentive is given to the qualifying expatriate for a period of 5 years of assessment from the time when the individual becomes a Singapore tax resident.

To qualify for NOR status, the expatriate must:

• be a non Singapore tax resident in the past 3 years of assessment; and
• in the first year of assessment when the person qualifies for NOR status, the expatriate must be a Singapore tax resident

Upon qualifying for NOR status, the expatriate can then enjoy the time apportionment of the employment income provided the following conditions are satisfied:

• The expatriate spends at least 90 days outside Singapore for business and
• The expatriate must have a minimum employment income of S$160,000.

Please note that where the tax on the apportioned income falls below 10% of the expatriate’s total Singapore employment income, he will be subject to a minimum floor tax rate at 10%.

Cessation of employment

When the expatriate’s contract comes to an end or if the person wishes to terminate his/her stint in Singapore, the employer will need to ensure that the expatriate settles all taxes before the person leaves the country, in other words, the person will need to obtain Tax Clearance before his/her departure from Singapore.

The employer must notify the Comptroller of Income Tax within one month before the expatriate’s departure from Singapore. The employer will be required to withhold all monies until Tax Clearance is obtained. Generally it takes 7 days to a month to obtain Tax Clearance.

Employment pass and other matters

Expatriates who are required to work in Singapore must have valid Employment Passes issued by the Ministry of Manpower.

Please note that from 1 August 2014, as part of the Fair Consideration Framework, companies who wish to hire must first advertise in the Singapore Workforce Development Agency’s Jobs Banks for at least 14 days.

However, the following jobs are exempted from the advertising requirement:

• Jobs in firms with 25 or less employees; or
• Jobs that pay a salary of S$12,000 and above; or
• Jobs holding senior positions or requiring high level of expertise under a intra-group transfer; or
• Jobs required for short-term contingencies (for not more than one month).

Please note that expatriates are not required to contribute to any Singapore retirement or pension fund that is locally known as Central Provident Fund (“CPF”). In addition, medical insurance costs as well as reimbursement for medical expenses to employees are not taxable provided these benefits are made available to all employees in the company.

If life and accident policies are provided in which the expatriate is named beneficiary then the premiums paid by the employer on such policies will be treated as part of the taxable employment benefits. This is unless the employer chooses not to claim tax deduction for such costs incurred, and accordingly such benefits provided will be treated as not taxable as part of an administrative concession granted by the Comptroller of Income Tax.

Conclusion

Most expatriates will find Singapore to be a cosmopolitan city with a stable government and very safe environment. Singapore is a gateway to the world with its efficiency, and emphasis on increasing productivity to become a first world nation.

Coupled with Singapore’s low tax rates, no estate duty, exemption of foreign sourced income in the hands of individuals, many may want to come to Singapore to make it their home.